December 2008 Archives

Catherine Rampell published a post today on the New York Times Economix blog entitled "Take My Economy ... Please!" In addition to her gracious reference and link to our collection of economics jokes, the other links were pretty funny. I'm sure we'll be cataloguing them here soon.

In order of appearance, she included:
1) Fortune.com's 21 Dumbest Moments in Business 2008
2) Nationalpost.com's Best Financial Jokes of 2008
3) The LOLFed.com blog in general
4) The New Yorker magazine cartoons from its October 6, 2008 issue
5) Econosseur's collection of economic jokes and cartoons
6) Businessweek's Worst Predictions about 2008

Has Calvin been in Detroit?

CalvinAndHobbsLemonadeStand.jpg(Thanks to Mary Hokanson for sending this to me.)
The December 2008 Journal of Economic Literature published the 105th annual list of doctoral dissertations in economics published between July 2007 and July 2008. This is really just a shameless plug by Rick and Jason for our two of favorite entries in this year's JEL list. The first is entitled, Three Essays on Openness, International Pricing, and Optimal Monetary Policy, and the second is entitled, Essays on Dynamic Political Economy.

Some positives in global forecasts

The Globalization and Monetary Policy Institute (GMPI) at the Federal Reserve Bank of Dallas just released its most recent International Economic Update today. One bright spot in this report comes from the chart below that forecasts that the global economy (as represented by the U.K., Euro-area, and Japan) will return to positive growth in the second quarter of 2009. I think this forecast, taken from Consensus Economics, might be a little overly optimistic.

WorldGrowthForecast2008-12.gif

Ford Tough

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How refreshing to see one of the Big Three automakers putting their economics where their mouth is. Ford, for the present time, is declining any government bailout aid. In a previous post, I made the argument that bailing out the Big Three would be simply a pass through directly to the United Auto Workers (UAW) labor union. By declining government bailout loans, Ford is avoiding the extra government oversight and restrictions that come with those loans. Ford has positioned itself to be in the best position of the Big Three to compete with the Japanese automakers in the long run and investment should start flowing to Ford right now.

Economic Christmas card

(The text below comes from a the Christmas card that I and my family sent out to some of our friends and family.)

Merry Christmas and Happy Holidays from the Evans family!

There is no RECESSION of Christmas spirit at the Evans home this year, despite the ECONOMIC DOWNTURN. We have moved into our new home in Provo, which represents our own little MORTGAGE-BACKED SECURITY. However, a remaining problem is that our landscaping still has a tendency to cause GREAT DEPRESSION.
After the decline of the core CPI of -0.1% for October 2008 (reported last month), I have been telling students and associates to watch out if we had another decline in the core CPI in November. Two consecutive declines in this more stable measure of consumer prices (it excludes the volatile food and energy components) would signal an increased likelihood that a destructive deflationary spell is upon us. The Bureau of Labor Statistics reported today that core inflation actually increased by 0.02%. This is a very small number that is practically zero. But at least it is positive. In keeping with the analogy of my last post, we have dodged the deflation bullet for the month of December (November CPI).
The Federal Reserve's decision today to lower the fed funds rate to a target range of 0.00-0.25% represents the Fed's last shot they can take at the recession with the fed funds gun. They are literally out of ammo with that instrument. You can't lower the rate below zero. The effective fed funds rate for Wednesday, December 10, was 0.13%. We are now really in uncharted territory. How can I say this any more forcefully? This is like Japan in the 1990s, except every other country in the world is entering a recession as well. The only difference is that the Fed is trying to signal more willingness to do anything and everything than Japan did in the 1990s. We'll see if it will be enough.

EffectiveFedFunds2008-12.png

Real impact factor

RealImpactFactor.png
Greg Mankiw posted this on 12/6/08.

The Social Costs of Pornography

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A colleague of mine, Joe Price, was a discussant last week at an interdisciplinary conference hosted by Princeton University called "The Social Costs of Pornography." The stated goal of this conference was to "assemble leading experts in the fields of psychiatry, psychology, neurophysiology, philosophy, sociology, law, and political theory to present a rigorously argued overview of the problem of pornography in our society and to make recommendations." They also had a number of scholars serve as discussants throughout the meeting in order to ensure "that the papers will be energetically critiqued in order to promote a fair and in-depth assessment of the issues in question." One of Joe's comments upon returning was that too little scientific discipline was (and has been historically) imposed upon arguments detailing the social costs of pornography. He has started an ambitious collaborative project in order to remedy some of these weaknesses.

Rules versus Discretion

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In an excellent piece on the response to the financial crisis, John Taylor highlights the important concept of rules versus discretion in government policy.

Taylor shows that monetary policy during the start of the housing boom deviated significantly from the "rule" it had been following for the previous 20+ years.  Taylor and his coauthors find evidence that this amplified the boom and bust in the housing market.   While not everyone agrees with this conclusion, Taylor presents some convincing counter factual experiments.

The trough

Here is the list of financial institutions that have received capital injections from the TARP program.  I only have an account with one of these financial institutions, but was somewhat surprised by the size of the capital injection given relative to the size of that bank.

I also find it a little odd after the reports that Wells Fargo had to be strong-armed to take TARP funds that the amount that they took was tied with JPMorgan and Citi for the highest total withdrawal at $25B.  Maybe the implicit tax break (which may soon disappear)  that they received to purchase Wachovia wasn't enough and so they decided to actually fund the purchase with money from the Fed.  They paid about $15B for Wachovia.
Economic inquiry, especially in macroeconomics, benefits from recessions in that they focus attention on questions in the field. As an example, note how many prominent macroeconomists are Argentinian.

FieldtripEconomist.gif(Thanks to Mark Showalter for sending me this.)
A December 1, 2008 editorial piece in the Wall Street Journal entitled "America's Other Auto Industry," notes the rise in market share of foreign auto companies with plants in the U.S. from less than 30% of the market in 1986 to 54% in 2008. The current difference in market share looks closely correlated with the efficiency drain of the United Auto Workers union on the Big Three auto companies. And any benefits that may have gone to the auto companies in the past because of their market power will now only go the the UAW--the very cause of the Big Three's floundering.

UScarmarketshare2008-10.gif

Crisis and Leviathan

A great chart on the bailouts from Slate: http://www.slate.com/id/2206356/

To ruin the punchline- in the last 12 months, the government has spent almost as much on the bailouts as it spent in all of 2007.  It has committed more than twice the amount of the 2007 budget. 

As Senator Dirksen put it (or didn't): "A billion here, a billion there, and pretty soon you're talking real money."

Thanks to Bart (who is a "helluva engineer"), for the link.

Argument against the gold bugs

John Tamny had a post today on Real Clear Markets arguing that the way to make the value of the dollar more stable against currency depreciation is to tie it to some commodity like gold. I would argue that his timing is off and his argument is flawed.

Pennies, revisited

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As an update to a previous post (I promise that I won't do this for every Treasury auction), the Treasury today auctioned $27B for three months at an annualized discount rate of 0.005%.  That's ½ a basis point.  So the treasury will pay about  $338,000 to borrow $27 BILLION for 3 months.  As a side note, this is the lowest three month yield since 1929 (cue scary music)...

See here for all of the details.

Macro anagrams

I agree with Jason's post that macroeconomics is not dead. But what can you do, if you can't make fun of yourself? The following anagrams come compliments of Kerk Phillips.

Macroeconomics... "cosmic moon race"

Business cycle... "sly sub-science"

"A hell of an engineer."

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Having lunch at a spot frequented by Georgia Tech students yesterday, I overhead the following:

"After MIT, Tech has the second highest LSAT to GPA ratio of any school.  That's an empirical statistic that shows we don't have grade inflation like other schools."

Well, I'm glad I'm an economist,not an engineer; and a Bulldog, not a Yellow Jacket.  

Whether or not a student takes the LSAT is endogenous.  I can imagine that engineers are relatively more likely to go to work or get a graduate degree in business or the sciences than are those who don't attend a trade school.  It's likely that engineers who go to law school are largely made up of those who don't get into these difficult graduate programs and thus are more likely to have a low GPA. 

The sky {is, is not} falling

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I found the following graph startling: 
Thumbnail image for BORROW.png
All those years where you can't see a line at all?  That is because borrowing was zero.  Notice that periods with little or no borrowing include: the recession of the early '90s, most of the dot com bubble burst and pretty much all of the '40s, '50s and '60s.

Has the credit crisis killed macro?

A current meme proposes that macroeconomics has failed - both to predict and to explain the credit crisis.  The new claims against macro have only added fuel to the fire of those who have suggested that macro shouldn't be part of the core curriculum of economics PhD programs or shouldn't be a discipline altogether, unless it undergoes serious changes.

Does macro have anything to say about the current crisis?

In short, I think it does.  To highlight some of the most relevant macro work:


Rearranging "auto industry bailout"

Rearranging the letters of 'Auto Industry Bailout' gives:

"It a lousy, burnt-out aid."
"Ruinously aid to a butt."
"At unodious brutality."
"Suitably unadroit out."
"Dubiously taunt a riot."
"Batty or unusual idiot."
"I outlast unadroit buy."
"To a nutty, dubious liar."
"Ya! Bad, nutritious lout."
"Is loud obituary taunt."
"It a burly, odious taunt."
"It dirty unusual taboo."
"Ruinously but it a toad."
"Nuts! It a loud obituary."

(Thanks to Kerk Phillips for sending this in.)

Pennies from heaven

The size of the recent fiscal and monetary stimuli (is that a word?) has many concerned about the spiraling national debt.  Luckily, a biproduct of the financial crisis has been extremely low short term yields on treasury securities.  As of this morning (about 12:30 ET) Bloomberg lists the following as the yields on U.S. Treasury securities.
treasury-yields.png
Notably, the yield on the three month T-Bill is 1 basis point.  1.  That's 0.01% when it is annualized.  What does that mean for the Treasury?  It means that the cost of financing $10,000 for 90 days is ... wait for it ... 25 cents.  Put another way, if Treasury could rollover the entire, $10.6 trillion national debt for three months (which of course they couldn't because the demand curve for this stuff has to slope downward somewhere) it would cost them a mere $265M in interest.  That is about 0.00184% of the current estimate of annual GDP.   

OLG is 50

In his article in the current Journal of Economic Perspectives (Fall 2008), Philippe Weil celebrates 50 years of "'wow factor',... originality and coolness" of the overlapping generations (OLG) model introduced by Paul Samuelson in 1958.

The Big Three

Better give them what they are asking for this week.  When the size of the loan is increasing at an annual rate of almost 3,000%, I'm not sure we can afford to have them come back again.

Six economic cartoons

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(Thanks to Mark Showalter for sending me these.)

EconToiletCartoon.jpg
"It is difficult to get a man to understand something, when his salary depends on his not understanding it!"

(Upton Sinclair, I, Candidate for Governor: And How I Got Licked, (1935) repr. University of California Press, 1994, p. 109.)

Paul Krugman used this quote in his blog post Sunday (Nov. 30, 2008) as the final word in his plea for policy makers to get on board with a big Keynesian fiscal stimulus plan.

Authors

  • Richard W. Evans is an Assistant Professor of Economics at Brigham Young University

  • Jason DeBacker is an Assistant Professor of Economics at Middle Tennessee State University

  • Kerk L. Phillips is an Associate Professor of Economics at Brigham Young University